Doug Cogan

As fiscal and sovereign wealth problems in the US and Europe weigh on global financial markets, another problem is brewing in agricultural markets that could blunt a sustained economic recovery. World food prices have reached record levels, and show few signs of abating. Low-income consumers in the developing world have been hit especially hard, with ripple effects spreading around the globe.

The ongoing Fukushima disaster is a major setback for the nuclear power industry. A much-anticipated “nuclear renaissance” will be slowed and likely curtailed, as happened after the Three Mile Island and Chernobyl accidents . Increased regulatory scrutiny and safety precautions will add to the rising costs of this industry, which is already losing ground to cost-competitive alternatives, like natural gas, renewables and investments in energy efficiency.

Government subsidies will be essential for continued nuclear power expansion. Government support is needed to: defray the high capital costs of building nuclear reactors, decommissioning them, permanently disposing of spent fuel, and indemnifying plant operators from potentially huge insurance liabilities. Growing public recognition of these “hidden” costs may further limit nuclear power expansion.

Nuclear power will remain a part of the global energy mix. It provides nearly 15 percent of global electricity needs. It is promoted as a carbon-free power source that fights climate change. Its use may grow in nations with limited energy resources, policies to cap carbon emissions, and where public opinion continues to view nuclear power as a comparatively safe and affordable form of electricity. However, even pro-nuclear nations are reassessing their policies in light of the latest nuclear accident at Fukushima.

New safety reviews will add to rising construction and operating costs of nuclear power plants. Added regulatory and investor scrutiny will increase costs in the following areas:

Disaster planning and backup power

Evacuation zones and community preparedness

Storage and protection of spent nuclear fuel

Plant financing and capital costs

Insurance indemnification

MSCI ESG Research is factoring these cost considerations into its ongoing research of nuclear-generating electric utilities. Financial effects will vary by company and region. Electric utilities operating in countries with centrally planned generating systems, and which continue to receive substantial government support for nuclear power, will likely continue with their nuclear power expansion plans, albeit at a more tempered pace. Utilities operating in countries with more independent and decentralized regulatory systems, and which have reactors in areas of high seismic activity or in proximity to large population centers, are more vulnerable, and are likely to see a contraction of nuclear plant licensing extensions and new reactor orders.

MSCI ESG Research on Nuclear Power and Product Offerings

We take an in-depth and multi-faceted approach to companies involved in nuclear power. Our research addresses an array of client needs in portfolio screening, identification of controversies, and ESG ratings and profiles.

ESG Manager: We track all publicly traded companies that manufacture or operate nuclear power plants so that concerned investors can screen these companies from their portfolios.

The ongoing nuclear power crisis in Japan will have lasting implications for power generation around the globe. A much-anticipated “nuclear renaissance” could be curtailed as the world absorbs lessons from the worst nuclear accident since the Chernobyl disaster 25 years ago.

The United States, with 104 operating reactors, and Europe, with 143 reactors in 27 countries, now plan extensive reviews of their nuclear plants and disaster preparedness. China, with 11 operating reactors, has also suspended approval of more than two dozen new reactors.

This may give a boost to competing low-carbon generating sources, such as natural gas and renewable energy. MSCI’s Global Alternative Energy Index recorded a 10.1 percent gain in the first 10 days after Japan’s nuclear crisis began. This compares with a 22.8 percent loss for the MSCI Japan Electric Utilities Index over the same period. Coal may also get a short-term lift, since nuclear power is its chief rival in providing base-load power generation.

Forty-eight years ago this week, President Kennedy summoned Americans to put a man on the moon. Today we need a new Apollo project to re-launch our economy and protect our planet.

This 21st century race features the United States against a new rival, China, which recently surpassed Japan as the world’s second-largest economy and the U.S. as the world’s largest carbon emitter. Both countries face a common adversary in global warming, which shows no respect for politics or international borders.

The Securities and Exchange Commission’s decision to ratchet up corporate disclosure on climate change comes at the right time. The SEC last issued interpretative guidance on environmental disclosure 25 years ago, and the new document comes in time for the 2010 proxy and annual report season.

The Commission took pains to say it was not passing judgment on whether the climate is changing. But it did say companies must meet investors’ demand for carbon emissions and other climate risk data—and that such disclosures may no longer be considered voluntary.

The climate change scientists whose emails were recently hacked are living their worst nightmare. Like many of their colleagues, these scientists had long been frustrated by a handful of vocal global warming skeptics. The hacked emails gave skeptics a new opening to sow doubts about global warming, just as media attention turned to the Copenhagen climate summit.

These scientists spoke in some private emails of resisting Freedom of Information Act requests and boycotting journals that provide an ongoing platform for the skeptics' views. Neither the hacking nor the censorship should be condoned. But when this dust-up settles, these things will be certain:

The evidence of human contributions to global warming is so overwhelming that this media sideshow will have no impact on the outcome of the Copenhagen meeting.

The real issue to be addressed at Copenhagen is how to pay for the ballooning costs of climate change. These costs now include not only trillions of dollars of investments in carbon mitigation, but also spending on adaptation measures, to address warming that will continue throughout our lifetimes. By some estimates, these adaptation costs will rise above $100 billion a year.

The Impact of Dumping "Coal Mines into the Air"

Global warming is a scientific fact. The debate now is at the margins of just how fast and dangerous the warming will be.

Svante Arrhenius won a Nobel Prize in 1896 for his theory that "evaporating our coal mines into the air" would eventually double the atmospheric concentration of carbon dioxide and raise the Earth's temperature by 5 to 10 degrees Fahrenheit. That's still the basic forecast today, except what Arrhenius thought would take a thousand years could well happen in this century.

The World Meteorological Organization has reported that the first decade of the 21st century will be the warmest since modern temperature records began in 1861. The Earth's temperature has risen nearly 1.5 degrees F since then, with another 1 degree F of warming expected within the next 30 years as the warming trend accelerates. By 2100, the Earth could be as much as 8 degrees warmer - a level not seen since the Age of the Dinosaurs 65 million years ago.

While skeptics point out that the global temperature has not exceeded the peak set in 1998, this does not change the fact that the Earth has caught a fever and so far has done nothing to stop it. In fact, all of the years since 1998 rank among the warmest on record; 2009 is expected to go down as the fifth warmest year.

If one wants other physical evidence of this warming, look no further than the North Pole, where the Arctic Ice Cap–a permanent fixture of the Earth over the last 3 million years–is melting so fast that it could disappear entirely during summer months within the next five to 10 years.

Official Scientific and Governmental Consensus

Since 2000, many of the world's most reputable scientific organizations have issued reports or statements supporting the human link to global warming, and the dangers it poses:

In 2001, the U.S. National Academy of Sciences issued a report at the request of the Bush administration that concluded rising global temperatures in recent decades were "likely mostly due to human activities" (and issued a much more strongly worded report in 2009).

In 2003, the American Geophysical Union concurred, saying, "Scientific evidence strongly indicates that natural influences cannot explain the rapid increase in near-surface temperatures observed in the second half of the 20th century."

In 2007, the Intergovernmental Panel on Climate Change (IPCC) issued its fourth assessment since 1990 on the state of climate change science. It concluded that there is greater than 90 percent certainty that most of the warming over the past 50 years has been caused by human activities, and that 3.4 degrees F to 8.3 degrees F of warming is likely with a doubling of atmospheric CO2.

In March 2009, the IPCC provided a disturbing update to its forecast, warning that "[r]ecent observations show that greenhouse gas emissions and many aspects of the climate are near the upper boundary of the IPCC range of projections." Simply put, "the worst-case IPCC scenario trajectories (or even worse) are being realized."

And on Monday, the U.S. Environmental Protection Agency issued a final ruling that greenhouse gases are endangering the environment and human health, triggering the need for regulatory controls. This finding, too, was driven by the weight of scientific evidence that human activity is largely responsible for the warming taking place.

"We know that skeptics have and will continue to try to sow doubts about the science," remarked EPA administrator Lisa Jackson at the announcement. "It's no wonder that many people are confused. But raising doubts – even in the face of overwhelming evidence – is a tactic that has been used by defenders of the status quo for years."

Academic Consensus

That is why responsible climate scientists find it so frustrating that public doubts persist, even though the basic premise that human activity is contributing to climate change has not been seriously contested for years or even decades:

One literature review of 928 peer-reviewed articles published in the 1990s and through 2002 found that 75 percent either explicitly or implicitly accepted the consensus view that human activity is contributing to global warming. The remaining 25 percent of these studies dealt with other facets of the climatological issue, stating no position on this key question, according to the review by the Program in Science Studies at the University of California.

In another recent survey of more than 3,000 Earth scientists, 82 percent agreed that human activity is a "significant contributing factor" in changing global temperatures. Specialists in the field who actively publish on the issue were in almost total agreement: 75 of these 77 climate scientists–about 97 percent–agreed with the statement.

Fundamentally, responding to climate change is sound risk management. While the chance of our house burning down is highly remote, we still take the precaution of buying fire insurance. Why then would we not take out insurance when there is a greater than 90 percent chance that our world is catching fire?

That is what the Copenhagen summit is really about. The longer we postpone real action to bring down greenhouse gas emissions to address global warming, the higher our premium costs will go.

Doug Cogan is Director of Climate Risk Management for RiskMetrics Group. His 1992 book, The Greenhouse Gambit, was one of the first to address the business and investment implications of climate change. He has since written many other reports and articles on climate and energy topics and helped develop a Climate Change Governance Framework to analyze corporate and fund manager responses to this issue.